Audit Accuses Kentucky Ed. Dept. of Fiscal 'Subterfuge'

The Kentucky Department of Education violated state law by
transferring unspent money to various school districts and education
cooperatives rather than returning it to state coffers—a practice
that enabled a former department official to embezzle more than
$500,000, the state auditor asserts in a recent report.

The report by Edward B. Hatchett Jr., the auditor of public
accounts, also alleges that the department went against state
purchasing regulations in paying $300,000 to the National Faculty, an
organization that conducts teacher-training institutes. The
Atlanta-based organization, which employed former Kentucky schools
chief Wilmer S. Cody before he took the state commissioner's post in
1995, did not have a written contract with the department.

The department "appears to resort to subterfuge by transferring
money it characterizes as 'grants' to cooperatives and school districts
for use in subsequent budget periods," the April 18 report says.

The report notes that it was from such grants to the Kentucky
Education Development Cooperative, one of nine cooperatives that enable
districts to purchase supplies and professional development services at
lower prices, that former Deputy Commissioner of Education Randy
Kimbrough allegedly embezzled more than a half-million dollars by
authorizing payments from those funds to fictitious vendors.

"When you have that kind of environment where financial
accountability is so loose, it is entirely conceivable that you will
have funds wasted or stolen," Mr. Hatchett said in an interview last
week.

Ms. Kimbrough pleaded guilty to the embezzlement charges in federal
court on April 10. Her sentencing hearing is scheduled for July 31. A
lawyer representing Ms. Kimbrough declined to comment last week on the
auditor's report.

End-of-Year Grants To End

Lisa Y. Gross, a spokeswoman for the education department, said that
the funds the department transferred to the education cooperatives and
school districts at the end of the fiscal year were earmarked for
specific educational purposes.

"We don't consider that [the funds] were held back in any violation
of the law," Ms. Gross said. "Even though the auditor says we were
trying to hide them, that's not the case."

Still, in a written response to Mr. Hatchett's report, interim
Commissioner of Education Kevin M. Noland told the auditor that the
department would stop the practice of giving districts and cooperatives
end-of-year grants.

"You have my assurance that at the close of this fiscal year, any
remaining financial balances that are not under contractual obligation
will lapse to the general fund," Mr. Noland said in the April 18
letter.

The auditor's report also calls into question the department's
relationship with the National Faculty. It says that the department
authorized five educational cooperatives and one school district to pay
the organization for teacher training without having a written contract
for services.

Mr. Hatchett also suggests that Mr. Cody's previous employment at
the organization "raises the question of whether a conflict of
interests influenced the KDE's business dealings" with the
teacher-training group.

Department officials acknowledge that the organization should have
had a written contract with the National Faculty, but say that the
group did provide the teacher-training services for which it received
payment.

Mr. Cody, who stepped down as education commissioner in January and
is now working on a research project at his home in New Orleans, said
he was surprised that such a contract did not exist.

"I had thought there was a written agreement," Mr. Cody said in an
interview last week. "There should have been one, and I'm somewhat
puzzled that there wasn't one."

Still, Mr. Cody said there was no conflict of interest in the
department's dealings with the National Faculty, because he had left
the organization in 1995.

To ensure that some of the lapses indicated by the auditor's report
don't happen again, Ms. Gross said, the department has tightened up its
controls and is working to hire an internal auditor. Mr. Noland pledged
to create such a position shortly after Ms. Kimbrough was indicted in
the embezzlement scandal in January. ("Kentucky Auditor Probes Spending by
State Ed. Dept.," Feb. 2, 2000.)

"This is not a reflection of the other staff in the department," Ms.
Gross said. "You can trace every single piece of this back to one
person, and that is Randy Kimbrough."

Vol. 19, Issue 34, Pages 24, 27

Published in Print: May 3, 2000, as Audit Accuses Kentucky Ed. Dept. of Fiscal 'Subterfuge'

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